Craig Moffett of Bernstein Research wrote an amazing report entitled And Now for the News...The Emperor Has No Clothes". If you can get a copy, read it. Starting with the disappointing but expected news that journalism is no longer a service consumers desire to pay for, he moves on to the problems facing Internet video. He does a far better job than I ever did explaining the failings of Internet video and the expectation of free content. This is the report I wish I had blogged.
From the report:
Ironically, we are headed down the same self-destructive road for other kinds of traditional media,as well. Five years into the video-over-the-Internet revolution, we have learned two things. First; consumers won't pay for content on the web, so it will have to be ad supported. And second; it won't be ad supported.
In the cable TV network world, half of all revenues come from affiliate (carriage) fees paid by the Comcasts and DirecTVs of the world. The other half comes from advertising. But in the TV world, a typical half hour show supports an ad load of about 8 minutes.
On the web, early evidence suggests that consumers will tune out – click away – if they are forced to watch more than 30 seconds or so of advertising up front, and maybe another 90 seconds of advertising over the next thirty minutes. Hulu.com, for example, which has already been lionized by many as the future of TV, serves two minutes of advertising for every 22 minutes of programming(i.e. the programming duration of a typical half hour show from television). Assuming identical CPMs for web video and TV, and after accounting for lost affiliate fees, a 30 minute program on the web with two minutes of advertising yields approximately 1/8th as much revenue per viewer.
He goes on to ask some other legitimate-sounding questions about how networks will cope when they are no longer able to use the popular portions of their schedules to prop up the still-expensive but less-popular parts of their schedules. But finally her ends up here:
Are TV networks making a huge mistake by putting their current TV schedules online for free? If a streamed TV show only has 2 mins of commercials, will that drive some viewers to prefer watching online ? Will it force networks to reduce their TV show ad load? If so, by how much ? Particularly if and when over the top video enables Internet video to be presented right on TVs. Will shows be forced to introduce different versions of shows, say with different ratings as a means of differentiating TV from streamed shows? The R rated version of Friday Night Lights online and the PG version on TV?
Bottom line is that something has got to give. Business as usual is not going to cut it. The question is whether the dollars the big TV and media companies are creating online from the streaming of their current TV lineups are sustainable incremental dollars? Or is streaming the video a collateralized video obligation? The video equivalent of the collateralized debt behind the sub prime mess. Money that looks good while its coming in, but could lead to far, far bigger problems?
First: No one is making a "mistake" by offering ad-supported streaming versions of network programs. It may not be a long-term solution to a crumbling economic model, but not offering legitimate streaming versions is foolish and self-defeating.
Are networks already forgetting that the reason they were forced to put shows online in the first place is that if they don't, viewers will find shows torrented shows online anyway, through free, illegitimate means? If someone misses a live broadcast or otherwise wants to watch TV online, they can find a way to do it. Online streaming beats illegal torrents of TV shows because they are easier to find and faster to download, but if they are not available, young, desirable viewers are the most proficient at seeking out torrents and the least likely to feel guilty about it.
Napster and file-sharing gained momentum while the music industry failed to agree on an iTunes-style model that consumers would actually use. Withholding legal streaming in hopes of increasing live viewership (which the CW is trying with Gossip Girl) seems ridiculous, especially for a show so targeted to tech-savvy youngsters that its promotional taglines are ":-O" and "OMFG."
As for the problem of making people view ads... I want Hulu to succeed and even I admit I click to other tabs while waiting for ads play... wouldn't anybody? But I still hear the ads, and if the ad's message comes through in audio, I receive it, and that should count. After all, advertisers still paid for TV ads even though lots of people used that time to flip channels, get a snack, or go to the bathroom, right?
Pop up bugs below the video -- already used on YouTube and Revver -- are unavoidable views, and you don't click away because the video is still playing. No one likes them, but they are tolerable and they work. What about those?
I think advertisers need to realize that exposure to their ads is more powerful than they think. We shouldn't need to click through a banner ad for that to count as an impression. I almost never click on banner ads, but that doesn't mean that they do not successfully communicate that, say, Harold and Kumar 2 is coming out. I don't click on outdoor billboards but somehow people make money on those. I think online advertising needs a model where seeing or hearing an ad counts as delivery -- you know, like it does everywhere else -- and can be a source of revenue even if people don't click on it. Because it's 2008 and we've had the internet for over a decade and people don't click on everything they see anymore, so let's get with it.